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UPDATE 2-Opel "vital" for GM in Europe, not for sale

* GM rejects reported Fiat interest coming at delicate time

* GM to decide soon on Opel cost cuts, alliance with PSA

* Opel says aims to source more parts from PSA, not GM

* US legal requirements mean GM car parts expensive

(Adds analyst comments) By Christiaan Hetzner and Ben Klayman FRANKFURT/DETROIT, Oct 5 (Reuters) - General Motors Co

said on Friday its European brand Opel was "vital" for GM's future in Europe, dismissing once again speculation it might sell the company should an alliance with French carmaker PSA Peugeot Citroen collapse.

GM has thrown its weight behind a restructuring of its loss-making German business, rather than opt for a sale or closure urged by some U.S. investors.

The U.S. company is pinning its hopes instead on expanding an alliance with former rival Peugeot beyond logistics to include joint procurement and vehicle development.

"Opel is not for sale. GM fully stands behind Opel," GM Vice Chairman Stephen Girsky said in a statement sent by email.

Earlier on Friday, Italian daily Il Sole-24 Ore said in an unsourced report that Fiat SpA Chief Executive Sergio Marchionne was ready to buy Opel if GM's alliance with Peugeot dissolves.

"Opel is a fully integrated part of GM's global footprint and vital for GM's future success in Europe. The GM-PSA alliance is fully on track," Girsky said in the statement.

Fiat had already tried unsuccessfully to acquire Opel in 2009, and Chief Executive Sergio Marchionne has stated that mass market carmakers can only survive in the long term if they can split ever rising development costs amongst a volume of between 5-6 million new cars sold annually.

"I think a deal is incredibly unlikely, I don't see what Fiat have that Peugeot doesn't already bring to the table," said Credit Suisse analyst Erich Hauser.

Fiat has no big European product launch coming until 2014 with the Alfa Romeo Giulia, whereas Peugeot is coming with an all new 208 small car, he explained. Nor does the Italian carmaker even have a midsize entry like PSA and Opel on which costs can be shared between brands.

"Fiat doesn't have the money to fund Opel's operations - it is the European carmaker with the most leveraged balance sheet, so GM would have to put money on top and why would they fund Fiat to do this? I don't think GM is that desperate yet," he continued.

Morgan Stanley analyst Adam Jonas warned though that Opel has cost GM about $16 billion over the past dozen years and forecasts another $1 billion in annual operating losses on average through 2021.

He argued that other carmakers have proven willing to bite the bullet and spend heavily just to free themselves of toxic assets like Opel that threaten to mire them in chronic losses.

BMW coughed up nearly $3 billion to unload its UK brand Rover in the 1990s while Daimler was willing to pay $9 billion to convince U.S. private equity firm Cerberus to acquire Chrysler in 2007.

JUST BELT, NO SUSPENDERS

"Marchionne realizes that there's no future for a lot of the mass market in Europe unless there is a shared sacrifice and commitment to have capacity exodus, and he's trying to be a catalyst to that," Jonas said.

Officials at GM were angered by the timing of the Fiat story, wondering whether it was meant to scare away Opel customers and sow division between Opel on the one hand and PSA' with its Peugeot and Citroen brands on the other -- all three key rivals of the Italian carmaker.

Opel has just begin selling the new Mokka subcompact SUV that competes with the Fiat Sedici. More importantly, the GM brand is set to launch the Adam lifestyle mini that directly is aimed at Fiat's popular 500 car.

Moreover GM and PSA are expected to decide in the coming weeks on joint procurement and engineering that can help improve annual results by about $1 billion for each company within about five years time.

Separately, Opel interim CEO Thomas Sedran told the Tagesspiegel newspaper he saw significant potential to lower manufacturing costs by sourcing some parts together with Peugeot and Citroen rather than with parent GM.

"GM has global requirements for parts and components that are unusual in the industry. A starter is tested at 40 degrees below zero, just as would be needed in Alaska, otherwise it fails the test -- the supplier can only meet these if he uses expensive materials," he said in comments published on Friday.

"As part of the GM group, Opel is oriented much too often on far too stringent standards required under U.S. legislation. Figuratively speaking you need a belt in addition to suspenders -- in Europe one is sufficient," he said.

(Reporting By Christiaan Hetzner. Editing by Jane Merriman)

((christiaan.hetzner@thomsonreuters.com)(+49 - 69 - 7565 1249)(Reuters Messaging: christiaan.hetzner.thomsonreuters.com@reuters.net))

Keywords: OPEL GM/

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